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The number of jobless people in the UK fell by 146,000 in the three months to July, taking the total to 2.02 million. Photograph: Piero Cruciatti/Demotix/Corbis
The number of jobless people in the UK fell by 146,000 in the three months to July, taking the total to 2.02 million. Photograph: Piero Cruciatti/Demotix/Corbis

UK unemployment rate falls to lowest level since 2008 financial crisis

This article is more than 9 years old
City rules out rate rise after jobless numbers fall more sharply than expected – but pay packets continue to shrink in real terms

The City is ruling out a rise in interest rates this year amid evidence that a fresh fall in unemployment to its lowest levels since the height of the financial crisis has failed to reignite pay growth.

Data from the Office for National Statistics (ONS) showed that joblessness on the internationally agreed yardstick was 468,000 lower in the three months to July than in the same quarter of 2013 – the biggest annual decline since the Lawson boom was raging in 1988.

George Osborne said the 146,000 fall in joblessness marked "another step on the road to full employment" but Labour and the Trades Union Congress (TUC) seized on news that earnings were failing to keep pace with prices.

Shadow employment minister Stephen Timms said: "Pay excluding bonuses today is the lowest on record. Under this government wages after inflation have already fallen by more than £1,600 a year since 2010 and by next year working people will have seen the biggest fall in wages of any parliament since 1874."

Frances O'Grady, TUC general secretary, said: "Last week the governor of the Bank of England said the fall in real wages is the worst since the 1920s and today's figures show it getting worse. Pay increases are less than half the rate of inflation, so living standards keep on falling."

ONS figures showed unemployment on the "labour force survey" measure fell to 2.02m in the three months ending in July.

The rate fell more sharply than expected, with the drop from 6.4% to 6.2% taking it to levels not seen for almost six years. The alternative "claimant count" measure, which looks at the number of people out of work and claiming jobseeker's allowance, fell by 37,200 to 966,500 in August, the first time it has been below a million since September 2008, when the global financial crisis began with the bankruptcy of Lehman Brothers.

Between May and June this year there were 774,000 more people in work than in the same three months of 2013, but the ONS said that in the three months ending in July, employment rose by just 74,000, the smallest increase for more than a year. It said that of the 74,000 jobs created, 68,000 were part-time.

Unemployment WEB 180914
Unemployment WEB 180914

ONS data for pay showed that increases in earnings continue to lag behind the 1.5% annual inflation rate, although the gap is narrowing. Pay including bonuses in the three months ending in July was 0.6% higher than in the same three months of 2013, while excluding bonuses it was up by 0.7%.

In the three months to June, earnings including bonuses were 0.2% lower than a year earlier, while excluding bonuses they were up by 0.6%.

Annual comparisons in recent months have been distorted by the timing of City bonuses in 2013, which were deferred to take advantage of the fall in the top rate of income tax from 50% to 45%.

John Philpott, director of the Jobs Economist consultancy, said: "Although the UK labour market continues to improve, there are tentative signs in the latest figures that the balance between job creation and pay growth may have started to shift. The increase of 74,000 in the number of people in work is less than half that recorded in the previous quarter and the lowest quarterly increase for a year.

"Moreover, in contrast with recent quarters almost all the net new jobs were part-time. Pay meanwhile ticked up a bit with growth in regular pay (excluding bonuses) rising from 0.6% to 0.7% and the gap between regular pay growth and CPI inflation – the real pay squeeze – narrowing from -1.3% to 0.9%."

David Kern, chief economist at the British Chambers of Commerce, said: "Annual wage increases remain well below 1% which is much lower than the rate of inflation. This reinforces our belief that the [Bank of England's] Monetary Policy Committee must delay raising interest rates until well into 2015. We must give businesses a period of stability with low interest rates, if we are to strengthen the economic recovery."

Anna Stupnytska, global economist at Fidelity Worldwide Investment said it would take time for earnings to start rising faster than prices.

"This, combined with the current housing weakness and a number of uncertainties (including the status of Scotland post-referendum and the course of the Russia/Ukraine conflict), should keep the Bank of England in the accommodative mode to – at least – year end."

More on this story

More on this story

  • TUC demands more progress on low pay, as jobless rate falls to just 6.2% - business live

  • One in five working for low pay – thinktank

  • Long-term unemployment almost double pre-financial crisis level – OECD

  • Number of young people classed as 'Neets' falls as labour market improves

  • Self-employment in UK at highest level since records began

  • Bank of England split on interest rates reopens prospect of a rise in 2014

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